Citigroup Asia Fees Rising as Debt Sales Counter Equity Drop

Citigroup Inc. (C) is boosting revenue
at its corporate and investment banking unit in Asia with rising
fees from debt underwriting and cash management as initial
public offerings shrink.

Revenue at the division is up 15 percent to 20 percent this
year from the same period in 2011, Farhan Faruqui, head of
Citigroup’s global banking operations in the Asia-Pacific region
outside Japan, said in an interview.

Demand for the services such as hedging foreign-exchange
risk is increasing as companies in Asia move to protect
themselves against a worsening debt crisis in Europe, Faruqui
said. Stock and equity-linked sales in the Asia-Pacific region
have fallen as market swings derailed IPOs, prompting companies
to issue more debt.

“The debt market has been buoyant, and that’s been helping
in terms of offsetting some of the reduced equity activity,”
Faruqui said. “In a capital-constrained world, you want to be
looking at the entire range of options.”

Sales of bonds denominated in dollars, euros and yen have
reached $202 billion this year in the Asia-Pacific region, a 21
percent jump from the same period of 2011, data compiled by
Bloomberg show. Meanwhile the value of IPOs dropped to $18.2
billion from $45 billion.

‘Episodic’ Business

Securities firms have suffered as speculation mounted that
Greece would exit the euro and Spain was forced to seek a
bailout of its banks. Revenue from investment banking and
trading at U.S. firms may fall at least 30 percent this quarter
from the previous three months, Richard Ramsden, an analyst at
Goldman Sachs Group Inc., said in a note this month.

Bundling investment banking services such as mergers
advisory and equity underwriting with lending, trade financing
and cash management helped New York-based Citigroup soften the
impact of the drop in IPOs, said Faruqui. That model “allows us
to cope through volatility,” he added.

Citigroup’s revenue from securities and banking operations
in Asia rose 17 percent to $1.2 billion in the first quarter,
while profit jumped 46 percent to $307 million, according to the
company. The bank doesn’t break out regional earnings for the
corporate and investment banking business.

“The problem is that underwriting and M&A are episodic at
the best of times and, in these times, rare,” said Philip
Keevil, a former head of European mergers at Citigroup who is
now a partner at Compass Advisers Group LLC in New York. “Citi
has a constant interface with its clients via treasury services,
whereas in the pure investment banking model, bankers have to
make excuses to meet their clients in between deals.”

Client Meetings

Faruqui said he’s hired 35 managing directors and directors
in the past year, half of whom are investment bankers. His unit
now employs about 200 bankers.

Faruqui, 47, took up his current position in 2009 after
running corporate and commercial banking in the region. About 18
months ago, Citigroup intensified efforts to woo Asia’s biggest
companies, he said. The company now holds weekly meetings,
attended by corporate and investment bankers as well as managers
at other units, to discuss 10 companies that are among the
region’s top potential fee generators and with which Citigroup
is seeking to deepen ties.

Citigroup in January said it had entered into a global
treasury management agreement with China Petrochemical Corp.,
helping the biggest Asian oil refiner manage more than 1,000
bank accounts in 38 offices worldwide through Citigroup’s global
network.

China Revenue

Four months later, Citigroup won a role helping the company
known as Sinopec raise $3 billion in its first sale of dollar-
denominated bonds in 15 years, the biggest such offering ever by
a Chinese company.

Corporate and investment banking revenue stemming from
China, the world’s second-largest economy, is up about 30
percent this year from the same period in 2011, Faruqui said.

Citigroup ranks third in advising on so-called G3 debt
sales in the Asia-Pacific region excluding Japan this year,
after taking the top position in 2011, Bloomberg data show. It
is fifth in arranging sales of shares and convertible bonds, up
from ninth last year. In mergers advisory, the bank is No. 5 in
the region, unchanged from 2011, the data show.

“We have made good progress, I am not saying we are
done,” Faruqui said. “We can and are withstanding this
volatile period.”